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Concentrated market power and information asymmetry within the South African dairy supply chain

Bandama, Maureen (2011-12)

Thesis (MAgricAdmin)--Stellenbosch University, 2011.

Thesis

ENGLISH ABSTRACT: Concentrated market power and information asymmetry represent forms of market failure within the South African dairy supply chain. Following deregulation, instead of large numbers of buyers and sellers so that no buyer or seller holds significant amount of power to influence the market; and perfect information availability and accessibility, the supply chain is characterised by market concentration at processor and retailer level as well as information asymmetry. South Africa‘s number of dairy farmers has declined by up to 50% since 1997, and they face a small number of processors which have regional dominance. These processors sell to a concentrated retail sector which is the main distribution channel for milk and dairy products. As processors and supermarkets emerge as major drivers within the dairy supply chain; processors in South Africa utilise the information asymmetry to engage in anticompetitive behaviour while supermarkets exert their power through the conditions of sale in contracts with processors as well as the threat of in-house brands. Farmers have less bargaining power and receive lower farm gate prices than they would have in the absence of concentrated market power and information asymmetry. Consequently, these market failures are detrimental to allocative efficiency and the enhancement of equity objectives.
By method of a literature based comparative analysis, this study investigates the nature and extent of concentrated market power and information asymmetry within the selected dairy countries namely; South Africa, Australia, Canada, New Zealand, UK, and USA. The dairy supply chains in these countries show a spectrum of government control, such as Canada‘s system of supply management, Australia‘s deregulated system, and the US system which is mostly characterised by government intervention. The study then analyses how the selected countries address market failure within the dairy supply chain. An analysis of agricultural and dairy policies and strategies within the selected countries shows that systems that are designed to consider broader social goals (equity) apart for economic efficiency are more successful in preventing problems of concentrated market power and information asymmetry. The ways that the selected countries address the problems of concentrated market power and information asymmetry are analysed for applicability to the South African dairy supply chain.
Is it recommended that in order to position the South African dairy supply chain to address problems of concentrated market power and information asymmetry effectively, a departure from the strict adherence to the market, to move towards a reregulated system in which broader social and environmental goals are considered by multiple stakeholders in formulating policy and strategy within the supply chain is required.

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